ABC AIRLINES. Andy Seputro 0849057 Eni Ambarsari 0849021 Mera Puspita Sari 0747047 Subo Sumbogo Jati 0849052. INTRODUCTION. Risks are divided into: Core business risks Firm has at least some direct control Environmental risks F irm has little, even no direct control. Strategic Risks.
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Andy Seputro 0849057
Eni Ambarsari 0849021
Mera Puspita Sari 0747047
Subo Sumbogo Jati 0849052
Firm has at least some direct control
Firm has little, even no direct control
Because if we are unaware of their existence then we cannot begin to measure and manage the strategic risks.
Both Futures and forwards are very good at eliminating price risks that are of single-period nature.
Swaps are very good at eliminating price risks that are multi-period nature
Options are used to eliminate only negativedeviation from an expected outcome.
Commodity Hedge: enter a multi-period swap agreement with a commodity swap dealer. The advantages: the swap dealer is prepared to enter a swap tied specifically to jet fuel rather than to oil and there will be no variation margin (no need to maintain extra liquidity).
the up-front option premium that we would have to pay to acquire the jet fuel cap would represent a sizable outlay for the firm. Judy suggest that ABC consider employing a combination of all three.
Ticket revenue are positively correlated with interest rate. A statistical decomposition suggest that the correlation is highest when we allow for 3 month interest rate lag.
The company need to asses the impact of exchange rate on the firm’s revenue in dollars after adjusting the expenses
The company need to develop hedges that could be used to offset the exchange rate risk including the transactional,translation,and the competitive risk.
They should consider a focused marketing effort to capture a larger share of the European travel market.
Sebagai ilustrasi :
Perusahaan ingin meng-hedge 2 juta galon bahan bakar. Kemudian untuk korelasi antara perubahan harga futures tersebut dengan harga bahan bakar pesawat (r) adalah 0,928. sedangkan standar deviasi perubahan harga aset (Ss) 0,0263 dan harga futures (SF) 0,0313.
Dimana : h* = r (Ss / SF)
h* = (0,928) x (0,0263 / 0,0313) = 0,78
N* = 0,78 (2.000.000 / 42.000) = 37 kontrak
Kemudian jika standar deviasi futures dengan spot sama, maka jumlah kontrak yang dibutuhkan adalah :
N* = 1 (2.000.000 / 42.000) = 48 kontrak
Setiap metode hedging memiliki kelebihan dan kekurangan masing-masing bagi ABC, seperti dapat dilihat pada kasus oil prices yang dijelaskan pada penjelasan di nomer 2 dan pada penjelasan kasus interest rate pada nomor 4.
4. Explain clearly why Judy Waters concluded that ABC airlines has an interest rate risk exposure. What are the sources of this exposure and how does Judy Propose to deal with it? Does her strategy seem reasonable? What opportunities does the firm surrender if it adopts Judy’s plan?
based on airline’s financial history, ABC’s ticket revenues are positively correlated with interest rate. 3 month interest rate lag, revenues begin to rise, on average, about 3 month before interest rates begin to rise, means our revenues lead interest rates about 3 months. The interest rate effect on our revenue is quite pronounced. Source of this exposure is sensitivity of interest rate to firm’s revenue.
Judy’s suggest that the firm sell floating rate debt or sell fixed rate debt and then employ an interest rate swap to convert it to floating rate. Her strategy seem reasonable. The opportunity may ABC get is a stable EPS when they sell floating rate debt than if they sell fixed rate debt, it clearly describe in exhibit 10-13 and 10-14.
d. Currency swap,cash flow exchange from two company it influence about unexpected condition of interest rate.each company can do swap it will be part of asset or credit side depend on needed of company.swap use term to decided the ability to swap detail it based same position of present value of swap cash.